Identifying Legal Costs of the Operation of the Common European Sales Law: Legal Framework, Scope of the Uniform Law and National Judicial Evaluations

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1 Identifying Legal Costs of the Operation of the Common European Sales Law: Legal Framework, Scope of the Uniform Law and National Judicial Evaluations DRAFT FOR DISCUSSION 1 Simon Whittaker, University of Oxford. 1. Introduction: legal costs generated by the present position The European Commission makes clear in its Explanatory Memorandum to the Proposal for a Regulation on a Common European Sales Law ( the Proposal ) 2 and in the recitals to the Proposal itself that its fundamental purposes are economic, rather than social or political. Indeed, these purposes are a necessary element within the Proposal as presently put forward, since the Commission rests the European legislator s competence for enacting the proposed Regulation on article 114 TFEU, which empowers it to take measures for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and functioning of the internal market. So, while the Proposal is concerned to explain that its provisions governing consumer contracts give expression to a high level of consumer protection (as is again required by this Treaty competence 3 ), the protection of consumers is not the purpose of the Proposal. 1 This discussion draft awaits further references to relevant secondary sources. 2 Proposal for a Regulation of the European Parliament and of the Council on a Common European Sales Law Com(2011) 635 final ( the Proposal ), recital 2. This Proposal is prefaced with an Explanatory Memorandum ( Explanatory Memorandum ) from the Commission and contains two annexes: Annex 1 containing the Common European Sales Law ( CESL ) and Annex II containing the Standard Information Notice. 3 Art. 114(3) TFEU. There is a distinct question as to the competence on which the Proposal rests, as it has been argued that the Proposal does not fall within the EU competence under art.114 TFEU as it does not seek to harmonise national law: see K. Riesenhuber, The Proposal for a Regulation on a 1

2 How then does the Commission envisage that its Proposal will help establish or promote the functioning of the internal market? 4 The Commission s view is that the Proposal would promote and facilitate cross-border economic activity. 5 So, while the Proposal acknowledges that it cannot deal with all the obstacles which are presently faced by would-be cross-border traders, including tax regulations, administrative requirements, difficulties in delivery, language and culture, it adds that traders consider the difficulty in finding out the provisions of a foreign contract law among the top barriers to business-to-consumer transactions and in business-to-business transactions. 6 The Proposal continues: the need for traders to identify or negotiate the applicable law, to find out about the provisions of a foreign applicable law often involving translation, to obtain legal advice to make themselves familiar with its requirements and to adapt their contracts to different national laws that may apply in cross-border dealings makes cross-border trade more complex and costly compared to domestic trade. Contract-law-related barriers are thus a major contributing factor in dissuading a considerable number of export-oriented traders from entering cross-border trade or expanding their operations into more Member States. Common European Sales Law Competence, Subsidiarity, Proportionality a Report to the Committee on Legal Affairs of the German Bundestag (in German) available at (last visited 10 April 2012). 4 This competence is controversial, it being argued that the Proposal does not fall art.114 TFEU as it does not seek to harmonise national law: see K. Riesenhuber, The Proposal for a Regulation on a Common European Sales Law Competence, Subsidiarity, Proportionality a Report to the Committee on Legal Affairs of the German Bundestag (in German) available at (last visited 10 April 2012). 5 Recital 1. 6 Recital 1. 2

3 Further into the discussion in the recitals, the Proposal accepts that there are significant differences in the type of legal costs associated with cross-border contracting as between business-to-business ( commercial contracts ) and businessto-consumer ( consumer contracts ). In the case of commercial contracts, the Proposal acknowledges that EU law already contains a legal mechanism for reducing the legal costs involved by providing uniform private international law governing the law applicable to contracts in the Rome I Regulation ( Rome I ). 7 Under Rome I in principle the parties to a crossborder 8 commercial contract of sale of goods 9 can choose the law 10 applicable to their contract, 11 subject principally to qualifications based on overriding mandatory provisions either of the forum 12 or of the law of the country where the obligations arising out of the contract have to be or have been performed, in so far as those overriding mandatory provisions render the performance of the contract unlawful. 13 Apart from these qualifications, Rome I s scope of the applicable law is very wide, including the existence and validity of the contract or any contract term 14 (and the consequences of nullity), interpretation, performance, the consequences of breach of 7 Regulation (EC) No. 593/2008 on the law applicable to contractual obligations ( Rome I ) [2008] OJ L 177/6. The scope of this Regulation is very wide, but not universal. So, while it applies in principle to all civil and commercial contracts, it excludes a number of types of agreement and issues set out in art. 1(2) Rome I. 8 Art. 3(1) Rome I does not restrict the freedom of the parties to choose the law applicable to crossborder contracts, but art. 3(3) provides that where all other elements relevant to the situation at the time of the choice are located in a country other than the country whose law has been chosen, the choice of the parties shall not prejudice the application of provisions of the law of that other country which cannot be derogated from by agreement. 9 Art. 3(1) Rome I is general rather than restricted to contracts for the sale of goods, but contracts of insurance (even if commercial) are specially governed by art. 7 Rome I. 10 Under the Regulation, the law must be a law of a State, rather than a set of rules such as the Principles of European Contract Law or the Unidroit Principles of International Commercial Contracts: see Dicey, Morris & Collins on the Conflict of Laws (14th edn, 2006 with Fourth Supplement), para (as regards the Rome Convention). Recital 13 Rome I implicitly recognise this position in providing that parties may choose a non-state law which will take effect as terms of the contract. 11 Art. 3(1) Rome I. In the absence of choice, art. 4 sets a default rule for contracts of sale of goods. 12 Art. 9(2) Rome I. 13 Art. 9(3) Rome I. 14 Art. 10 Rome I. The qualification in art. 10(2) is interpreted restrictively: 3

4 obligations (including the assessment of damages), the various ways of extinguishing obligations, and prescription and limitation of actions, although it is expressly provided that in relation to the manner of performance and the steps to be taken in the event of defective performance, regard shall be had to the law of the country in which performance takes place. 15 So, subject principally to the rules on overriding mandatory provisions, a cross-border commercial seller of goods or a commercial buyer of goods can decide that it will subject all its contracts to a single national law, thereby cutting down its legal discovery costs very considerably. For this purpose, there is no reason in the Rome I Regulation why such a commercial party should not determine the applicable law by reference to a standard term in the contract. 16 This possibility means, therefore, that the main legal costs in commercial sales are to be found in relation to negotiation of the law which the parties choose to govern their law. 17 The Commission notes that [d]ealing with foreign laws adds complexity to cross-border transactions 18 and that the economic impact of negotiating and applying a foreign law is also high, especially for SMEs in their relations with larger companies which generally have to agree to apply the law of their business partner and bear the costs of finding out about the content of the foreign law applicable to the contract and of complying with it. 19 The idea is, therefore, that as regards those commercial contracts for which the CESL would be available, SMEs would benefit 15 Art. 12(2). The line between the substance of the obligation to perform and the mode of its performance may not be straightforward: Dicey, Morris and Collins, op. cit., paras (re. art. 10(2) Rome Convention which is in identical terms. 16 Art. 3(2) provides that: the choice shall be made expressly or clearly demonstrated by the terms of the contract or the circumstances of the case. Cf. the position as regards law governing the law applicable to non-contractual obligations (including as regards liability for pre-contractual negotiations), where the power of choice of commercial parties is restricted to the case where this stems from an agreement freely negotiated before the event giving rise to the damage occurred : Rome II, art. 14(1)(b). 17 The Proposal does not raise the question of the costs of an agreement on the choice of court or jurisdiction agreement. Under the Brussels I Regulation, such an agreement may be effective subject to certain conditions: see, in particular, art. 23 Brussels I. In the case of certain consumer contracts, arts severely curtail the effectiveness of such an agreement. 18 p Explanatory Memorandum, p.?? 4

5 from its availability as they would not have to have to incur legal discovery costs as regards an applicable law more or less imposed on them by their economically more powerful contracting partner. On the other hand, in these circumstances it is unlikely that the SME would incur costs as regards the drafting of standard terms, as they are likely to have to contract on the standard terms of their more powerful partner: their prejudice is therefore substantive rather than relating to this category of transaction costs. The intention is that the availability and choice of the CESL by commercial parties where one party is an SME will enable both parties to reduce their legal discovery costs. The legal costs which the Commission identifies inhibit cross-border consumer contracting differ significantly from those incurred in relation to commercial contracts: in all but the most unusual case, there is no cost to the trader in negotiating applicable law which it can impose on the consumer. However, under article 6 of the Rome I Regulation, the ability of the contracting parties to choose the law applicable to a consumer contract is significantly qualified where the trader: (a) pursues his commercial or professional activities in the country where the consumer has his habitual residence, or (b) by any means, directs such activities to that country or to several countries including that country and the contract falls within the scope of such activities. 20 Where these conditions are fulfilled, any choice of law to govern the contract cannot deprive the consumer from the protection of provisions that cannot be derogated form by agreement under the law of his or her habitual residence. 21 As a result, any trader contracting cross-border either takes the risk of falling foul of national consumer protection or faces legal discovery costs as regards these legal protections, which are only partially harmonised as a result of EU law s 20 Art. 6(1) Rome I. 21 Art. 6(2) Rome I. 5

6 own programme of targeted and minimum harmonisation of the last two decades. 22 This results in both legal discovery costs and, once properly informed, the cost of drafting standard terms which protect the trader s position in the light of whatever national protections are discovered unless the trader simply takes the risk of the existence of such national consumer protection laws and the extent to which its customers will have recourse to them. The aim of the Proposal, though, is to allow cross-border traders to contract with consumers on a single uniform basis (the CESL), which would, in its view, have the practical effect of circumventing the impact of article 6 and therefore avoid these costs. 23 For the purposes of the present article, I do not seek to deny the existence fo the costs caused by the present position as identified by the Commission; rather I wish to consider the other side of the equation, by identifying the costs which incurred by traders if parties to cross-border contracts of sale of goods 24 can be governed by the CESL in the way which the Commission envisage. In my view, these costs can be grouped under three headings: the legal framework into which the CESL is set; the relative uncertainty and complexity of the scope of the uniform law contained in the CESL; and the impact of national judicial evaluations in the application of the CESL. 2. The legal framework of the CESL I have sought to explain elsewhere the technical legal framework in which the CESL is intended to be set by the Proposal. 25 The most important point to be made here is 22 As the Proposal acknowledges at recital 3 in fine. 23 I explain elsewhere how this technical circumvention is intended to work and the technical problems to which this gives rise: S. Whittaker The Proposed Common European Sales Law : Legal Framework and the Agreement of the Parties (2012) M.L.R. forthcoming. 24 The present discussion will be restricted to contracts for the sale of goods. 25 Whittaker, op. cit., n. 00 above. 6

7 that the CESL does not seek to substitute itself for existing national laws of contract nor to by-pass existing rules of applicable law (notably, the uniform EU rules applicable to contractual under Rome I and non-contractual obligations under the Rome II Regulation). 26 The proposal is rather that the proposed Regulation, by its legal nature within the system of EU secondary legislation, 27 would create in the law (or laws 28 ) of each Member State a second, national law of contract governing the contracts and the issues within its scope. 29 So, for example, as regards sale of goods, English law would consist of (1 st regime) a mixture of the common law and the Sale of Goods Act 1979 and (2 nd regime) the CESL. Unlike the 1 st national regime 30 (which applies to contracts governed by it by operation of law), the CESL governs a contract of sale of goods only if the parties agree to use it: it is an optional instrument. Given that the Proposal would require the CESL to be available to contracting parties only if the contract is concluded cross-border (as defined by the Proposal), 31 how does this option relate to existing private international laws of Member States and, in particular, the uniform EU laws in Rome I and Rome II? The answer to this question is not straightforward, but may be summarised as follows. First, the Proposal distinguishes between choice of applicable law for private international law purposes and the agreement to use the CESL: in particular, the Proposal does not propose that the CESL should be available as a further law to be chosen under Rome I Regulation. Instead, the idea is that normally the parties to a 26 Regulation (EC) 864/2007 on the law applicable to non-contractual obligations ( Rome II ). 27 Art. 288 T.F.E.U. 28 Some Member States contain more than one legal system. So, for example, in the UK, the law of England and Wales would contain the CESL as would also Scots law. 29 Proposal, recital This position is complicated by the United Nations Convention on Contracts for the International Sale of Goods ( CISG or the Vienna Convention ) which as regards most but not all Member States governs international commercial sales of goods unless the parties exclude it (as art. 6 provides). The UK and Portugal have not ratified the Convention. 31 The Proposal, art 4 defines cross-border contracts. Member States have the power under art. 13(a) of the Proposal to extend its availability to other contracts. 7

8 cross-border contract should choose as applicable law one of the national laws of the Member States and, within that law, should agree to use the CESL to govern their contract. This analysis has the advantage of preserving the formal integrity of existing EU private international law, but it has the disadvantage of considerable complexity, for it means that any choice of the CESL is framed by (or perhaps channelled through) existing private international law. This framework has three main consequences. 32 First, in principle the issues governed by the CESL in the law of a Member State could apply to the contract whose parties agree to use it only where those issues also fall within the scope of the power to choose applicable law under the relevant EU or national private international law or where that national law (or the national law of another Member State) happens to be identified as the law applicable under the relevant default rules of private international law. For this purpose, it is true that the vast majority of the issues between parties to contracts which are governed by the CESL fall within the scope of the Rome I Regulation, so that the choice of a Member State law (within which the CESL is contained) which the Rome I Regulation generally permits to commercial parties would allow all the provisions of the CESL to be chosen. However, the CESL also seeks to govern issues which would be classified as non-contractual for the purpose of EU private international law, notably as regards pre-contractual liabilities (including based on breach of information duties, for fraud, threats and unfair exploitation 33 ) and the restitutionary obligations arising on avoidance or termination of a contract. 34 Here, the Rome II Regulation severely 32 There is a fourth as art. 3 Rome I and art. 8(3) of the Proposal make different provision as regards partial choice of the applicable law and CESL respectively: Whittaker, op. cit., pp Arts 29, 49 & 51, 55 CESL and see below, p These would fall within arts 12 and 10 Rome II respectively. Recital 30 Rome II specifically includes violations of the duty of disclosure within art. 12: Dicey, Morris and Collins., op. cit., Supplement, para. S

9 restricts the power of contracting parties to choose the law applicable, generally limiting it to agreements entered into after the event giving rise to the damage occurred or where all the parties are pursuing a commercial activity, by an agreement freely negotiated before the event giving rise to the damage occurred. 35 On the other hand, under the default rules put in place for these two situations the law applicable to the contract would apply also to these non-contractual issues where the contract has in fact been concluded. 36 Secondly, the qualifications on the effectiveness of the choice of applicable law under 9 of Rome I based on the internationally mandatory rules of the forum or of the place of performance of a contractual obligation still apply so as to qualify the uniformity of the scheme put forward by the CESL: it is not true, therefore, to say that a trader would not have to find out about national laws other than the CESL. On the other hand, it is clear that article 9 s exclusion of lois de police is intended to be narrow and exceptional. This appears both in the definition of overriding mandatory rules as provisions the respect for which is regarded as crucial by a country for safeguarding its public interests to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the contract under [the Rome I] Regulation 37 and in recital 37 s requirement that it 35 Art. 14(1)(a) & (b) Rome II Regulation. 36 So, art. 12(1) provides that: [t]he law applicable to a non-contractual obligation arising out of dealings prior to the conclusion of a contract, regardless of whether the contract was actually concluded or not, shall be the law that applies to the contract or that would have been applicable to it had it been entered into. S. 12(2) then provides rules for the situation where the law applicable to the contract cannot be determined, but this would not be the case were the parties to choose an applicable law under art 3(1) of Rome I and the contract is concluded. Unlike its predecessor feasibility study, the CESL does not contain any provisions which would on their terms apply where no contract is concluded: cf. Commission Expert Group on European Contract Law, Feasibility Study for a future instrument in European Contract Law (3 May 2011) published as Annex IV to EU Commission, A European contract law for consumers and businesses: Publication of the results of the feasibility study carried out by the Expert Group on European contract law for stakeholders and legal practitioners feedback available at arts 27 (liability for breaking-off negotiations) & 28 (liability for breach of confidentiality). 37 Rome I, art 9(1). 9

10 should be interpreted restrictively 38 and applied only in exceptional circumstances. So, in this respect the uniformity achievable under the CESL is no better nor worse than the uniformity achievable by choice of a national law under the general power in Rome I. Thirdly, in the case of consumer contracts, there remains a degree of uncertainty as to the significance of article 6 Rome I s preservation in certain circumstances of the protection of the law of habitual residence of consumers. In the view of the Commission, this provision would still apply under the Proposal, but it would not make any difference as the substantive law in question under the CESL would be the same under the chosen law (MS 2 nd regime, CESL) and the law of the consumer s habitual residence (CESL), on the assumption that the consumer in question is habitually resident in a Member State. I have expressed doubts as to whether this finessing of article 6 works at a technical level where the CESL is chosen within a national law chosen under the Rome I Regulation. 39 These doubts could be dispelled by the Proposed Regulation s disapplying or amending the scope of article 6 Rome I, but this would highlight the scheme s reduction of consumer protection which this would, at least in certain circumstances, occasion. How do these technical legal points relate to the costs of the operation of the Proposal s scheme? First, the Proposal does not expect parties to commercial or to consumer contracts no longer to need to choose a national law applicable under the private international law instruments: rather, this is expected to be the normal means of identifying the Member State law within which the CESL is contained. True, choice of such a Member State law when coupled with choice of the CESL may not matter as 38 In particular, it should be interpreted more restrictively than provisions which cannot be derogated from by agreement which appears in arts. 3(3), 3(4), 6(2) & 8(1) Rome I. 39 Whittaker, op. cit., n

11 much to a contracting party because most of the rules applicable to the contract would be found in the CESL, rather than in the 1 st regime of the chosen national law, but at least some of the negotiating costs which the Commission finds in the present position would continue to be reflected in the costs of negotiating whether or not to use the CESL at all and, if so, which Member State law to choose for the purposes of private international law so as to make it available. Secondly, this technical legal framework does appear very complex. We are told by the Commission that legal complexity discourages businesses and, in particular, SMEs from contracting cross-border. The need to appreciate the workings of the EU private international law instruments and their relationship with the CESL is surely more than we can expect of most non-lawyer traders. Even with the benefit of general legal advice about these questions (which could be used for more than one transaction and more than one country of export or import), the degree of complexity involved is quite likely to generate mistakes and misunderstanding between traders which in the long term could itself discourage cross-border trade. As regards consumers, the average consumer would not be able to follow the complexities involved in this framework at all: this point does not, however, go to the question of an increase in the cost of cross-border contracting, but rather to the genuine nature of the consent of the consumer on which the application of the CESL is predicated Scope of the Uniform Rules. (i) New laws and their interpretation 40 See Whittaker, op. cit, n

12 All legal changes generate some initial additional costs as lawyers inform themselves of the new regime and how it differs from the previous, familiar position. For the most part, national laws tolerate these increased legal costs in the interest of the perceived benefits of the legal change in question as a matter of substantive regulation: the reform of the law does not come free. However, there are certain features of the CESL Proposal which are likely to generate more costs than national new laws. Of these, perhaps the most important feature lies in the need to delineate the line between the uniform system of law of the CESL and the national law or laws otherwise applicable under the private international law rules of the forum. In EU law terms, this turns on the scope of the CESL, here not in terms of the types of contract or the types of contracting party for which it is available but in terms of the substantive regulation which it sets out. As I will explain, the delineation of the scope of the CESL in this sense is by no means straightforward and would be likely to generate considerable uncertainty and/or legal costs in their judicial resolution. However, in order to consider the issue of the scope of the CESL in this sense, I need to make a short digression on the problems of interpretation (and therefore the costs) of new legislation. First, most legal change involves the replacement of one rule or set of rules with others. In a transactional context, the lawyer seeks to assimilate the new position, identify the differences between the new and the old so as to be able to advise their clients as to how to adjust their practice (whether in terms of behaviour or in terms of contractual drafting) as a result of the changes. Gradually, however, as cases involving the old law dwindle and involving the new law increase, old knowledge is replaced with new knowledge, both for lawyers and for their clients. However, this would not be the case as regards the CESL, for the concomitant of the 12

13 optional nature of the CESL is that lawyers throughout the EU would need to understand its significance while at the same time retaining their expertise in the old law: as the Proposal s recitals make clear, each EU Member State would contain two contractual regimes and lawyers would have to know both. Secondly, unless the new legislation is merely declaratory of existing practice, legal change generates new uncertainties of interpretation and significance. How do national lawyers tolerate these uncertainties given the necessary increase in legal costs which they introduce, either at the stage of pre-transaction advice or at the stage of dispute-settlement? I think that there are two main ways. First, national legal systems possess mechanisms for the reduction of interpretative uncertainty. So, one approach (often favoured by the UK legislator) is that the legislation is drafted in a way which seeks to reduce uncertainties to a minimum, dealing with as many issues as the legislator can foresee and defining any terms used by the legislation where these do not possess existing clear legal significance. 41 However, this approach is not followed by continental civil law systems in their civil codes, where such detailed regulation is seen as too complex to be accessible to citizens (which remains their ambition), too constraining of future judicial development and, indeed, too cumbersome A very prominent example of this can be seen in the Contracts (Rights for Third Parties) Act 1999, which reflects 10 years of intense discussion 41 and which responds to concerns expressed about legal and transactional uncertainty caused by the change by seeking to answer the questions as to the ambit of the change arising in the course of that discussion: in contrast to the roughly equivalent provision in article 1121 in the French Civil Code of 1804 (which runs to some 20 words), the English law statute has ten sections running to some 2,000 words. Art. 78 CESL contains 236 words. In English law, such a clear significance may be established either at common law (as, for example, misrepresentation in the case of the Misrepresentation Act 1967) or by judicial interpretation of the same term used in earlier statutes. So, for example, the expression interest in land for the purposes of the formality requirements for the sale or other disposition of an interest in land in the Law of Property (Miscellaneous Provisions) Act 1989 s. 2 is defined by case-law going back to the Statute of Frauds This does not mean that these same systems do not possess detailed and complex legislation in other areas. So, for example, in French law, while the general provisions govern contract law remain relatively few, the provisions governing residential tenancies look much more like the sort of detailed regulation associated with English law. 13

14 Secondly, as regards national legislation interpretative uncertainties are reduced by use of interpretative conventions. Apart from reference to the meaning of words in ordinary linguistic usage, recourse is often made to the purpose of legislation as a whole or to the purpose of particular provisions within the legislation: this is true of both English common law and continental civil law systems, although the extent to which it is true differs both between those systems and within them depending on the substantive legal context. 43 Clearly related to the incidence of such teleological interpretation, national courts may have recourse to the travaux préparatoires of the legislation, although the practical elements and degree of use of these legislative preparatory works differ significantly between European laws according both to their political and legislative institutions and according to their traditions. Thirdly, the wider national legal tradition is drawn on by courts in both common law and civil law systems. So, while the promulgation of the great civil law codifications of France of 1804 or of Germany of 1900 may at first appear to mark a discontinuity with earlier law, also marking or emphasising great political changes (respectively, the unification of the law of post-revolutionary France and unification of Germany with the establishment of the German Empire), there remained a considerable degree of legal continuity after their enactment. Indeed, an important reason why the French Code civil could be written in the broad language and relatively laconic sentences which it enjoys, uncluttered by definitions or explanation, is that it was written in an established legal language and, at least in many areas, drew on the tradition of Roman legal scholarship. This does not mean, of course, that the interpretation given to the words in the civil codes has remained static this is, indeed, far from being the case. But the national codifications of civil law of 43 See D.N. MacCormick & R.S. Summers, Interpreting Statutes: A Comparative Study (Dartmouth Publishing, 1991) pp

15 continental Europe drew on centuries and not merely decades of legal scholarship and legal practice. A particular good example of the significance of pre-codification law under the civil codes can be found in the interpretation of the famous paragraph 242 of the German Civil Code which requires the the debtor to perform according to the requirements of good faith [Treu und Glauben], ordinary usage being taken into consideration. 44 Good faith is found in the ancient Roman legal sources of contract law and was later given a much wider significance, but after the promulgation of the German Civil Code this rather narrow formulation in the Code 45 was used both to retain earlier legal thinking associated with what was known as the exceptio doli generalis and to provide a legislative peg for a series of new legal doctrines, of which the control of standard terms by reference to a standard of reasonableness is a very striking example. 46 Overall, therefore, in the case of both the French and the German law codifications, a crucial element in reducing interpretative uncertainty was the presence of a well-established legal tradition and legal language. How do these national mechanisms for reducing problems of interpretative uncertainty compare with the position in EU law and under the Proposal? First, as regards EU law generally, the European Court has available many different language versions of any legislative text, each of which is equally authoritative. Sometimes, terminology or phrasing in a particular language version may guide its interpretation; on the other hand, the multilingual nature of EU legislation does mean that the legal text has a somewhat less exalted significance than in some national laws. 44 For an introduction in English S. Whittaker and R. Zimmermann Good faith in European contract law: surveying the legal landscape in R. Zimmermann and S. Whittaker (eds) Good Faith in European Contract Law (CUP, 2000) 7 at (from which the translation in the text is taken). 45 It is also found in para. 157 B.G.B. as regards contractual interpretation

16 Secondly, the Court is concerned to give effect to the purposes of the legislation as stated explicitly in its recitals and as linked to the competence in the Treaties under which it was enacted. In the case of existing legislation in the area of contract law, as elsewhere in the acquis, this is immensely important for, until the Proposal, this legislation has been targeted on particular types of contract or particular issues which have been selected by the EU legislator as particularly worthy of harmonisation. For this purpose, the European Court sometimes has recourse to the travaux préparatoires of EU legislation. Thirdly, the Court has recognised a series of general principles of EU law, including the principles of equality, proportionality, legal certainty, fundamental rights and effectiveness. 47 The Court has accepted that, inter alia, it should use these principles in the interpretation of legislation. Apart from these general principles, the Court has also recognised other principles which have proved significant for the interpretation of existing EU legislation in the area of contract law, notably, the principle of the autonomy (or independence) of national laws of civil procedure and principles of civil law, including freedom of contract and recovery based on unjust enrichment. 48 As regards the CESL (if enacted), clearly the European Court as the ultimate arbiter of its interpretation is likely recourse to its existing interpretative techniques, but it also makes provision itself for its own interpretation. As regards its existing techniques, its multilingual nature may at times be used as a help to its interpretation, 47 On these see T. Tridimas, The General Principles of EU Law (2 nd edn., 2006), pp on their use as an aid to interpretation of EU law. 48 S. Whittaker in K Boele-Woelki and W Grosheide (eds) The Future of European Contract Law, Essays in Honour of Ewoud Hondius (2007) 333; S. Weatherill (2010) 6 European Review of Contract Law 74; M. Hesselink, in D. Leczykiewicz & S. Weatherill, The Involvement of EU Law in Private Law Relationships (2012, forthcoming). E.g. Case C-412/06 Hamilton v Volksbank Filder eg [2008] ECR I-2383 at para. 42; Case C-489/07 Messner v Krüger [2009] I para. 26 (not quite being clear whether these principles stem from EU or national law);case C-215/08, E. Friz GmbH v Carsten von der Heyden [2010] ECR I-2947, paras. 48 & 49 16

17 even though the work of the Expert Group on which the draft of CESL is based was conducted in English and its own feasibility study was drafted in English. Otherwise, though, there is something of a problem in identifying the purposes of the CESL s provisions. First, while the Proposal itself sets out in its recitals its overall purposes and to an extent at least explains the thinking of the Commission behind provisions within the Proposal s own articles (the so-called chapeau of the Proposal), it does not attempt to explain any of the substantive provisions within the CESL. Moreover, there is very little published by the Commission as to the work of the Expert Group entrusted with the preparatory work (putting forward a Feasibility Study for the CESL 49 ) and nothing published as to the reasons why it adopted particular provisions or their wording or why, on occasion, the Commission decided not to follow its advice. Secondly, the substantive legal background of the CESL itself differs significantly from the type of background provided for legislation enacted by national laws. For these purposes, a distinction can be drawn between those provisions in the CESL which reflect (or, sometimes, are closely related to) existing EU legislation (where existing case-law or scholarly commentaries would be helpful) and those which are not. In practice for this purpose, the provisions of CESL can be put in the following groups. (i) provisions which are directly drawn from the acquis: 50 i.e. most provisions specifically governing consumer contracts; the provisions 49 The operational conclusions of the Commission Expert group published by the Commission are not very revealing for these purposes, though they do set out the issues considered by the Group: see 50 To this category should also be added the provisions in CESL governing the non-conformity of the goods applicable to commercial as well as consumer contracts, which stem from Directive 99/44/EC on 17

18 governing interest on the late payment of debts; 51 and the provisions governing electronic distance contracts. 52 (ii) provisions of general contract law As regards all of the provisions in (ii), there is no case-law governing their interpretation. However, this does not mean that there is no background to these general contract law provisions. The work of the Commission s Expert Group was based on the academic work of the Study Group for a Civil Code, whose provisions governing contracts within the Draft Common Frame of Reference 53 were themselves closely related to the provisions earlier set out by the Principles of European Contract Law. 54 These fundamentally academic works set out in their notes how they relate to existing national laws and in their comments how they may apply in particular types of situation. Where a provision in the CESL can be seen to be closely related if not even identical to a provision in the PECL and/or the DCFR it is highly likely that the Advocates General of the European Court would refer to their accompanying notes and comments for the purposes of interpreting the provisions in CESL. 55 Having said that, however, there are two important limitations on the possible usefulness of these annotations, quite aside from the presence in the CESL of some provisions which do not have any direct relationship with provisions in these earlier European contract law certain aspects of the sale of consumer goods and associated guarantees, itself partly inspired by the Vienna Convention, above n Arts CESL. The EU law background is concerned only with commercial debts: Directive 2011/7/EU on combating late payment in commercial transactions, recasting Directive 2000/35/EC. 52 Art. 24 CESL. 53 Principles, Definitions and Model Rules of European Private Law, Draft Common Frame of Reference (DCFR) prepared by the Study Group for a European Ci vil Code and the Research Group on EC Private Law (Acquis Group) (OUP, 2010, 6 vols). 54 O. Lando and H. Beale (eds.) Principles of European Contract Law Parts I and II (1999); O. Lando, E. Clive, A.Prüm and R. Zimmermann, Principles of European Contract Law Part III (Kluwer, 2003). 55 Indeed, the European courts have already done so: Masdar (UK) Ltd v EC Commission (T 333/03) [2007] 2 All E.R. 261 (Court of First Instance); Hamilton v Volksbank Filder eg (412/06) A.G. Poires Maturo at [24] (referring to time limits for the exercise of a right as being a principle common to the laws of the Member States and citing the possible future DCFR). 18

19 provisions. First, there is a relative scarcity of explanation of the policy choices made by the groups responsible for drafting the provisions in question. 56 In part, this is to be explained by a general sense of what was thought proper for legal scholars embarked on such an enterprise as the setting out of principles of European contract law to refer to in the elaboration of their texts: reference was thought to be properly made to the different European national legal traditions but then, rather than looking for some common denominator or majority position, the groups sought to identify the best solutions to the problems which they identified. 57 However, the relative absence of explicit assessment of considerations of policy in relation to the content of these instruments means that the actual reasons why one approach is preferred in the text to another is unclear. This is important for present purposes since there is no genuine single background legal tradition in contract law on which the European Court can draw for the interpretation of the provisions actually included within the CESL: there are, instead, several families of legal tradition and, within each family, contrasts of both policy and technique. This is not to deny that there are a number of common elements and even common historical strands within the national contracts laws of Europe but, as often in law, the devil is in the detail, where here at least significant differences remain. How, then, does the CESL seek to deal with the problem of its own interpretation? Its solution is both simple and radical. Article 4 CESL provides that: 1. The Common European Sales Law is to be interpreted autonomously and in accordance with its objectives and the principles underlying it. 56 S. Whittaker The Draft Common Frame of Reference: An Assessment, commissioned by the UK Ministry of Justice (2008) (considering the first draft of the DCFR), pp In the case of the DCFR, the European Commission (which commissioned the production of the DCFR by the Study Group) had set this best solutions agenda: see Communication from the Commission to the European Parliament and the Council, A more coherent European Contract Law, An Action Plan Com(2003) 68 final, para. 62. Cf. Principles of European Contract Law, Parts I & II, p. xxvi. 19

20 2. Issues within the scope of the Common European Sales Law but not expressly settled by it are to be settled in accordance with the objectives and the principles underlying it and all its provisions, without recourse to the national law that would be applicable in the absence of an agreement to use the Common European Sales Law or to any other law. Article 4 makes clear, adopting the position taken by the European Court as regards many provisions within existing EU law, that its provisions are to be interpreted autonomously, that is, a distinctly European and non-national position must be taken. For this purpose, a court must take account of its objectives and principles underlying it. I have already explained that the identification of objectives of particular provisions may sometimes be very difficult, but to a limited extent this is helped by the CESL itself expressly setting three general principles in its first three articles to which, no doubt, a court would have recourse for the purposes of interpretation: freedom of contract, a duty to act in accordance with good faith and fair dealing and an obligation of cooperation in performance of their contractual obligations. 58 For the majority of English common lawyers, this approach to interpretation of a legal instrument is unfamiliar, but it reflects traditional continental European approaches to the interpretation of national civil law codifications. (ii) Establishing the scope of the CESL At this stage I wish to return to the problem of the delineation of the scope of the substantive regulation of the CESL. For, article 4 s reference to issues within the scope of the Common European Sales Law but not expressly settled by it merely 58 Arts 1 3 CESL. 20

21 poses the question when silence on a particular issue of the CESL is to be read as meaning that the issue falls outside its scope and when is it to be read as meaning that its falls within this court s duty of creative interpretation. If an issue falls outside the scope of the CESL, then it falls to be governed by the national law applicable; but if it falls within the scope of the CESL, then the court is required to construct a rule to deal with it. Here, there is something of a contrast with continental civil law codifications, as their aim is to be not merely coherent and consistent but complete within their broad scope of the general regulation of civil law relations: there are no substantive issues left outside their scope, even though particular issues may be the subject of qualification or exceptions outside the code, whether by more particular codifications (such as those governing commercial relations or consumer protection) or special legislation. The CESL is not, of course, a codification of the civil law; nor is it even a codified statement of the law governing contracts generally. Rather, it sets a group of rules specifically governing three types of contract (sale of goods, supply of digital content and contracts for the supply of related services) within a framework of the most prominent issues of general contract law. Unlike a civil code or even a contract law code, it leaves out a number of general issues which it could have regulated, some of which were indeed governed by the PECL and/or the DCFR. Indeed, the Proposal s recitals state that not all of the private law (or even contract law) issues arising between parties to a contract governed by the CESL are to be governed by the CESL. Recital 27 states that the matters of a contractual or noncontractual nature that are not addressed in the CESL: include legal personality, the invalidity of a contract arising from lack of 21

22 capacity, illegality or immorality, the determination of the language of the contract, matters of non-discrimination, representation, plurality of debtors and creditors, change of parties including assignment, set-off and merger, property law including the transfer of ownership, intellectual property law and the law of torts. Furthermore, the issue of whether concurrent contractual and non-contractual liability claims can be pursued together falls outside the scope of the Common European Sales Law. 59 This list is not particularly long, but the implications of some of its members are not clear. I will give three examples. (a) CESL and extra-contractual liability The question whether and how the CESL governs or otherwise affects the noncontractual liabilities of parties to a contract who have chosen to use it is unclear. Recital 27 assumes that some non-contractual matters are within the scope of the CESL, but then excludes from its scope the law of torts. For these purposes, it should be noted that, very broadly, non-contractual obligations or liabilities can either be restitutionary (based on the need to reverse an unjust enrichment) or arise under the law of torts (which I shall term extra-contractual liability ). Some obligations to return what [the recipient] has received do fall within the scope of the CESL, as Part VII makes express provision for restitution consequential on the avoidance or termination of a contract. No express provision is made there or elsewhere in the CESL for restitution consequential in other circumstances, notably, on the holding by a court that a contract term under which money has been paid (for example, a penalty 59 Emphasis added. 22

23 clause or a variation of price clause) has been held unfair and not binding : presumably, the court would be expected to apply the provisions in Part VII by analogy under its interpretative duty in article 4 CESL. However, the position of extra-contractual liability is more complex. As earlier noted, a number of provisions in the CESL impose liability on the parties to a contract in respect of their pre-contractual behaviour. 60 As a matter of national European laws, these liabilities are sometimes classified as contractual, sometimes as non-contractual and sometimes as a tertium quid, 61 but under the EU private international law instruments they are seen as non-contractual 62 and this classification appears to have been taken by the drafters of the Proposal, for (as earlier noted) its recitals assume the relevance to the question of the legal framework of the Rome II Regulation on non-contractual obligations and its provisions themselves appear to distinguish between liability for loss caused by breach of duty (the terminology used as regards pre-contractual liabilities 63 ) and the remedy of damages for nonperformance of a contractual obligation. 64 This being the case, there would appear to be no provisions in the CESL governing the legal incidents of non-contractual liability in damages. Does this mean that these issues are outside the scope of the CESL? 60 See art. (fraud, etc etc). 61 J. Cartwright and M. Hesselink Conclusion in J. Cartwright and M. Hesselink (eds.) Precontractual Liability in European Private Law (C.U.P., 2008) p. 449 at pp Rome II, art. 12 culpa in contrahendo. 63 See esp. art. 29(1) CESL. 64 Art. 106(1)(e) (buyer s remedy of damages); art. 131 (1)(d) (seller s remedy of damages); art. 155(1)(e) (remedies of customer in contract for related service contract). All these provisions then cross-refer to chap. 16 CESL concerned damages and interest. These are expressed in terms of the obligation, so art. 159 CESL provides that [a] creditor is entitled to damages for loss caused by the non-performance of an obligation by the debtor, unless the non-performance is excused. It is clear that the obligations described whose non-performance gives rise to a claim for damages is contractual rather than non-contractual (see the definition of contract as an agreement intended to give rise to obligations or other legal effects (Proposal, art. 2(1)) and the heading of, e.g., Part IV obligations and remedies of the parties to a sales contract or a contract for the supply of digital content 23